Storer OKs Sweetened Buy-Out by Kohlberg

Storer Communications, four days after spurning a buy-out proposal from Kohlberg, Kravis, Roberts & Co., on Thursday accepted a slightly sweetened offer from that New York investment firm valued by analysts at about $87 per share.

At that price, the deal is worth about $1.4 billion. If completed, it will leave Storer with its name and management intact.

Critics of Storer’s management vowed, however, to press ahead with a proxy fight at a shareholders meeting May 7. The group, led by a New Jersey investment banking firm called Coniston Partners, has nominated its own directors slate, which is committed to liquidating the company at $90 to $100 per share.

Price Is Main Objection

Paul Tierney, a principal in Coniston Partners, said in a telephone interview that his primary objection to the offer is “price,” but he also indicated that his group might be willing to work with KKR if the Coniston-backed directors gain control. Tierney expressed dissatisfaction with Storer’s incumbent management, contending that it has “refused to negotiate” with some potential “white knights.”

Storer has been under siege by the Coniston group since March 19, when the group announced its accumulation of 5.3% of the company’s shares and its proposal for liquidation.

Since then, the Miami-based broadcasting and cable-TV company says it has considered some merger overtures as well as the original KKR bid. On Monday, however, the company announced that it would make a tender offer for up to 36% of its stock in a combination of cash and notes valued by analysts at $81 to $94 per share. That offer has now been withdrawn.

Wall Street reacted unfavorably to that self-tender plan. Trading in Storer’s stock fell $2.25 on the New York Stock Exchange the day after the offer was announced.

Analysts said investors were angered by the fact that the company had turned down a proposal that would have enriched all shareholders equally, and they noted that, because of the offer’s timing, shareholders might tender their shares but still vote for the Coniston slate.

Form New Company

“By Tuesday, (Storer executives) realized they had just shot themselves in the foot,” one analyst said, asking not to be identified.

As under its initial offer, KKR will form a new company to merge with Storer, and each share of Storer stock will be converted into $75 in cash and preferred stock with a face value of $25. The preferred stock will begin to accrue cumulative dividends on the sixth anniversary of the merger at 13% per year.

To sweeten that offer, however, KKR agreed Thursday to add warrants to give Storer shareholders the right to acquire 10% of the equity of the new company if a public offering is made during the next 10 years.

If the warrants do not become exercisable, they will be repurchased at a price based on the appraised value of the new company, Storer said.

Some executives in the financial community expressed disappointment Thursday that Storer apparently failed to encourage a bidding war between KKR and Tele-Communications, the nation’s largest cable-TV company, which has expressed interest in acquiring Storer’s assets.

One source close to Tele-Communications complained that Storer officials made no effort to contact the Denver-based cable company before accepting the sweetened KKR offer. Asked if Storer tried to contact Tele-Communications in recent days, Holdgate said: “No comment.”

Under the new agreement, KKR will be entitled to collect a fee of nearly $21.2 million if the merger is not completed under certain circumstances, “including the acceptance by Storer of an alternate acquisition proposal, or if fewer than five incumbent directors are reelected at the annual meeting . . . or if a third party acquires 15% of Storer’s common stock in a tender offer,” Storer said.